'Frontline' Learns Firsthand Why Wall Street Is 'Untouchable'

Since the financial system's collapse four years ago, that question has been asked over and overagain. The question has sparked editorials, Congressional commissions, Oscar-winning documentaries and the Occupy Wall Street protests – but no criminal prosecutions. It is a question without enough satisfactory answers, and so it is a question that will persist even as it becomes less and less likely that any bankers ever will wind up in jail for the crisis.

The television program "Frontline" is the latest news organization to ask that question, in a worthwhile if occasionally frustrating hour airing Tuesday evening on PBS in most markets. "The Untouchables" provides an overview of some of the factors that led up to the financial crisis: the subprime mortgages recklessly churned out by lenders including Countrywide, the ravenous demand from Wall Street banks for raw material for their mortgage-backed securities, the shoddy oversight from big banks' credit departments.

"It was like a party," one former loan underwriter tells "Frontline's" Martin Smith. "We were getting through these loans as quick as we can. They were not being looked at like they should've been looked at."

Smith's interviews of contract underwriters are the program's most compelling parts, as they simply and devastatingly recount the housing industry's gross negligence leading up to the financial crisis. But making the case for specific criminal prosecutions proves more difficult for "The Untouchables" – as it obviously has for government officials.

"Frontline" efficiently summarizes the government's efforts in that direction: the signing of the Fraud Enforcement and Recovery Act; President Obama's creation of the financial crimes task force; the acquittal of two Bear Stearns hedge fund managers who were prosecuted for their roles in the crisis; the Financial Crisis Inquiry Commission and the Congressional hearings that summoned JPMorgan Chase (JPM) Chief Executive Jamie Dimon, Goldman Sachs (GS) CEO Lloyd Blankfein and other senior Wall Street executives to account for their roles in the financial crisis.

Most of this territory is familiar to those who have followed the financial crisis fallout, but "The Untouchables" effectively highlights some of the most infuriating or inexplicable lapses. Smith interviews Richard Bowen, the Citigroup (NYSE:C) whistleblower who found that the bank was buying huge amounts of bad mortgages. In 2007, Bowen alerted the chairman of Citi's executive committee, former Treasury Secretary Bob Rubin, to the problems with an email marked "URGENT — READ IMMEDIATELY — FINANCIAL ISSUES."

Summoned before the FCIC in 2010, Rubin haplessly defended his response to the panel: "I do recollect this [email] and that either I or somebody else – and I truly do not remember who – but either I or somebody else sent it to the appropriate people."

Why haven't any senior executives gone to jail? This is such a familiar question by now that anyone asking it for the first time needs to be more specific. Name names, and the laws allegedly broken.

"The Untouchables" stops short of doing so. It paints an unflattering portrait of former Countrywide CEO Angelo Mozilo, who presided over a blithe "Fund 'Em" strategy for mortgage lending. It leaves the viewer thinking Rubin might have responded to that "URGENT" email with slightly more alacrity and in so doing could have helped Citigroup avoid an eventual $45 billion in government bailouts. We see Congressional testimony from Blankfein and Dimon. But it's left to the audience to infer that some of these executives should be on the government's short list for prosecutions – and which bankers, under which statutes? (The show also ignores some of the more recent industry scandals, from Libor-rigging and money-laundering violations at several big banks to the London Whale trading losses at JPMorgan. Once again, the U.S. government has yet to hold any senior bank executives personally responsible for those problems.)

Lanny Breuer, assistant attorney general of the Justice Department's criminal division and "Frontline's" designated villain for the government's inaction, was "overly fearful" of losing any criminal cases, the program says, citing two former department prosecutors (neither identified by name).

Breuer tells Smith that when the government doesn't have enough evidence to bring a case, "we have … an ethical obligation not to bring those cases. But it's not for lack of trying."

Ultimately, while "The Untouchables" ably catalogues plenty of bad behavior, it sets itself up for the nearly impossible task of proving on television what the government, with its awesome powers and vast resources has been unable (or afraid to try) to prove in court: That specific individuals committed specific crimes.

Why haven't any bankers been criminally prosecuted for the financial crisis? Every time that question is asked, it seems to become more and more unanswerable.

Maria Aspan is the National Editor at American Banker. The views expressed are her own.

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Comments (19)

There are two reasons we don't name names. First, we don't know many of the names because we do not have access to them. Second, we have libel laws. You can't call people criminals without exposing yourself to vicious and destructive litigation. The second problem is exacerbated by the repeated statements from the Obama Administration that there was recklessness or negligence, but no intentional fraud.

Posted by masaccio | Tuesday, January 22 2013 at 3:46PM ET

History repeats itself. When government holds bankers to task, like Charles Keating in the 1980s tax payer bailout/savings and loan scandal, there will always be some politicos trying to prevent regulators from acting in the public's interest, instead of the criminals (see Keating Five's John McCain). I recall that Angelo Mozillo had lots of friends too.

Posted by andkel | Tuesday, January 22 2013 at 4:03PM ET

The hard thing to understand is how a company like Countrywide could pump so many bad assets into the securitization markets without violating the securities laws. A recent report on 60 Minutes said a third of the outstanding loans made by Countrywide were in default or foreclosure. That is an astonishing number if it is true. And, if it is true, I cannot understand how the risks in those loans could have been adequately disclosed to investors or how rating agencies could rate them investment grade. That is where the system broke down causing the Great Recession and where policy makers should be paying the most attention. If that doesn't violate the securities laws the laws need to be fixed.

Posted by amuranaka | Tuesday, January 22 2013 at 4:46PM ET

Last night's edition of Frontline showed that Wall Street firms and their staff are "Untouchable." Absolutely shocking to see the case against the banks that precipitated the Financial Crisis laid out so thoroughly, along with the proactive ineptitude of the government in holding them accountable. Clearly a case of the government working against the best interests of its citizens. Stark contrast to a government that sent over 1,000 bankers to jail for their roles in the S&L Crisis.

Posted by jim_wells | Wednesday, January 23 2013 at 7:08AM ET

Having watched the program last night, one explanation for the lack of prosecutions is obvious: the decicison makers at the DOJ are cautious to the point of cowardice. Heads should roll not just among the banksters, but at the Justice Dept. To the extent still possible new and more aggressive blood should be brought in to go after prosecutions. Elliot Spitzer's not doing much, why not give somebody of his proven skills a shot?